Main stumbling block to talks is high price being demanded for Daewoo Heavy Industries' shareholding in the company

Plans by Korean Air (KAL) to take over South Korea's main aerospace manufacturer Korea Aerospace Industries (KAI) have officially stalled and no new negotiations have been scheduled.

KAL acknowledges that "there is a stalemate in negotiations", adding that the main sticking point is the price to be paid for Daewoo Heavy Industries' stake in KAI.

The airline, which has its own in-house manufacturing unit known as KAL Aerospace, says no talks have been held with Daewoo since December, when a memorandum of understanding covering the planned deal expired. While KAL says it hopes to resume talks with Daewoo, none are scheduled and it is "hard to tell" when negotiations may be revived.

KAL signed a memorandum of understanding with Daewoo in August covering the proposed purchase of its 28.1% stake in KAI for between 102 billion won ($87 million) and 130 billion won. The deal was due to have closed before the end of 2003, but industry sources say Daewoo later demanded much more for its shares, leading to the breakdown in negotiations.

KAI's two other main shareholders, Hyundai and Samsung, also tentatively agreed to issue new KAI shares to KAL, enabling the airline to have a controlling stake and giving it management rights.

KAL says that, while Hyundai and Samsung are still in general support of the deal going forward, "they need to see movement with Daewoo first". KAI employees have, meanwhile, expressed opposition to a KAL takeover.

The airline has said that after it takes over KAI it plans to bring foreign funds into the company, which focuses heavily on military work and which has right of first refusal on government projects.

Source: Flight International